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US Manufacturers Leaving China for Mexico

Are Us Manufacturers Leaving China for Mexico?

When China joined the World Trade Organization (WTO) in 2001, US manufacturers flocked overseas to set up operations in the Asian country. Drastically reduced labor costs more than offset the cost of shipping their goods across the Pacific to US consumer markets. But that is changing. More and more US companies are reshoring their production this side of the Pacific. But they’re not all coming back to the US. In fact, many manufacturers leaving China are establishing production facilities just south of the border in Mexico.

The Mood is Shifting

For decades, China has had much to offer US manufacturers. Fifteen years ago, everyone was in the mood to offshore to China. Chief of all cost-saving benefits offered by doing business in China was their extremely low labor cost. But in the past decade, China’s wages have rapidly increased along with increasing fuel and transportation costs for shipping freight back home to the US. And the mood among many US manufacturers is beginning to change. While China still makes sense for some companies, others are reshoring their operations. But some manufacturers leaving China are reshoring to Mexico rather than the US – something that has come to be known as nearshoring.

The mood among many US manufacturing leaving China is that US wages are still too high and that nearby Mexico offers the perfect solution. The country has low wages, but is much closer to US markets than China.

Primary Considerations for Manufacturers Leaving China

Some of the primary factors influencing decision makers in making the move from China to Mexico include:

Currency Fluctuation
Chinese currency fluctuations have made revenue predictions difficult in recent years.

Transportation Costs
When oil was $35 a barrel, transporting goods back and forth between China and the US was not a significant challenge. But in recent years, the price of oil has shifted dramatically. Currently, oil prices have come back down somewhat, but not enough for some manufacturers to justify doing business on the other side of the globe.

Proximity
Transportation costs are not the only consideration when choosing where to set up manufacturing operations. In Mexico, manufacturers find their goods can be positioned in key US markets within days via highway or rail. Executives experience less burnout managing facilities in the same time zones and a short plane trip away.

Tariffs: Mexico has a unique relationship with the US as a member of NAFTA. In addition to having free trade agreements with dozens of other countries, Mexico enjoys zero tariffs in most cases on imports and exports with the US.

Reshoring is a new trend, but the surprising development is that US manufacturers leaving China are not all heading back home. Many of them have found Mexico offers the best of both worlds. In fact, according to one recent study, “Footprint 2020: Expansion and Optimization Approaches for U.S. Manufacturers,” more reshoring companies are establishing manufacturing operations in Mexico than the US.

For further information on this subject and others affecting US Manufacturers and Mexico visit https://www.tecma.com and review our blog postings

“The Tecma Group of Companies' services allow me to concentrate on making and selling wood pallets. I have Tecma handle all administrative functions, Mexican Customs, human resources, all permitting, as well as the legal aspects of manufacturing in Mexico. It’s a very good, complementary relationship. They provide me with a project manager, which means I don’t have to deal with a lot of individuals. I deal with one individual, who then deals with experts in all relevant disciplines on my behalf.”

“When we purchased the Dashmat product line, which is the product that we are manufacturing in Ciudad Juarez, we were able to establish a Mexico manufacturing plant with Tecma very quickly. They got us up and running very smoothly under their Mexico Shelter Manufacturing Partnership (MSMP). We like Tecma because it is a stable company that has been around for many years, and looks to be around for many more. Tecma appears to care about our Mexico business' success is very responsive to our needs.”

“Since we started, we have been able to maintain a competitive advantage over many of our competitors that have moved their manufacturing to China by reducing lead times to 4 weeks less than most of our competitors. This has given us the ability to compete on pricing against many of our competitors that have gone to China. We found that in our Juarez staff in Mexico we found a highly-trained workforce with strong background, and the capability to do mannequin manufacturing in Mexico.”

“More than a decade ago, Portage Electric Products Incorporated was faced with the reality that we were going to have to consider manufacturing in another country in order to maintain our competitiveness in the global marketplace. We chose Mexico, as we could be here literally within hours, should the need arise. We chose the Tecma Mexico Shelter Manufacturing Partnership (MSMP) because it provided virtually everything we needed to begin with and support an ongoing Mexico manufacturing operation.”

This quarterly publication will be populated with content that is useful and relevant to readers that are contemplating Mexico investments, have operations already within the Republic, as well as to other individuals that have an interest in Mexico and its manufacturing sector.